While the foreign policy of the United States is explicitly the purvue of the President, Congress nonetheless retains the power of the purse. President Reagan wished to actively oppose the Soviet and Cuban fomented violence and Marxist revolution in Central America, and their active material support of the communist regime of Daniel Ortega and the Nicaragua Sandinistas. The Boland Amendment however, forbid the use of any US federal funds to overthrow the Nicaraguan communist regime. Sources of funding were sought elsewhere.
CIA Director William Casey masterminded an arrangement through private, non-governmental entities and international arms sellers to raise funds and arm the Contras. A split-off policy followed to sell arms to Iran in its war with Saddam Hussein which Iran was badly losing. Arms sales to Iran also hopefully would improve US-Iranian relations which hit a low and broke off during the Carter administration.
Governor Bill Clinton of Arkansas responded to the official foreign policy directive of the United States in support of overthrowing the Sandinista regime by sending contingents of the Arkansas National Guard to Honduras to assist in training the Nicarauguan Contras.
- Main article: Mena airport
The Mena Airport in Arkansas became the logistical point for implementation of US Central American policy. Gross value of the illegally imported narcotics at Mena is said to have reached $100 million per month at its height, nearly ten times its cost of delivery in trade and arms.
On 5 October 1986, a C-123 transport plane delivering weapons to the Nicaraguan Contras was shot down by a surface-to-air shoulder launched missile. Two U.S. pilots and a Nicaraguan radio operator were killed, while Eugene Hasenfus, the "cargo-kicker" survived. The plane was carrying "60 collapsible AK-47 rifles, 50,000 AK-47 rifle cartridges, several dozen RPG-7 grenade launchers and 150 pairs of jungle boots". The plane had been owned by the now deceased Barry Seal, and based in Mena, Arkansas. Hasenfus's captured phone book contained the names of Barry Seal, Oliver North, and Felix Rodriguez which the Sandinista's used to attract American media attention and expose the Mena operation.
Even when Mena's gun-running operation was shut down after 1986, Mena continued to be used for illegal narcotics smuggling into the United States and the profits were pocketed by locals under then Governor Bill Clinton. In 1989 Clinton received petitions from Arkansas citizens demanding he convene a state grand jury and investigate Mena. Winston Bryant made Mena an issue in his successful bid for Arkansas Attorney General in 1990. A year later Bryant turned over state files involving Mena to Iran-Contra special prosecutor Lawrence Walsh, but Walsh did nothing with the reams of evidence.
The fair-haired boy
By March 1986, the CIA had already decided to begin extricating itself from Bill Clinton's Arkansas and move the operation to Mexico largely based upon two factors (1) the bust of Clinton's brother Roger and others close to Clinton on cocaine charges, and (2) the looting of cash, which was the government's property, by the Clinton's Arkansas political machine. A general air of sloppiness and corruption pervaded the Clinton end of the operation.
A few weeks after Barry Seal a meeting was held in a bunker at Camp Robinson in North Little Rock. The participants were Bill Clinton, Clinton's aide Bob Nash, Terry Reed, Felix Rodriguez, Oliver North, resident CIA agent Akihide Sawahata and an unidentified man in charge William Barr who represented himself as the emissary of CIA Director Bill Casey.
Barr spoke directly to Clinton,
|“||The deal we made was to launder our money through your bond business but what we didn't plan on was you and your ***** ******* here start taking yourselves seriously and purposely shrinking our laundry.||”|
Barr stated intelligence agencies have the same problem drug traffickers have, laundering cash and finding a bank willing to break the law by not filing required documentation. The bond business gave the state a cash flow that would allow dirty and clean money to co-mingle. The CIA was lacking a dirty banker willing to ignore federal banking laws, but they found it in Governor Clinton's administration. The banker was the Arkansas Development Finance Authority (ADFA), which was created by and directly under the control of Governor Bill Clinton. Additionally, the ADFA paid more than $100,000 in legal fees to the Rose Law Firm, in which his wife Hillary Clinton was partner.
A state investment bank was capitalized by cash transfusions the CIA was taking great pains to hide. This solved the dilemma of funding the Contras, but no legal way to deliver it directly. The agency was barred by Congress with the Boland Amendment from converting the cash into weapons and training the Contras.
The CIA needed other companies that would be a source of secretly produced weapons which would find their way into the hands of the Contras. Those businesses needed payment to perform these services for the CIA and that cash came to them in an illegal, undetectable manner, through ADFA in the form of industrial development loans.
But the laundry was shrinking. CIA knew Clinton and his people had not abided by Clinton's agreement with the agency. Barr remonstrated sternly,
|“||Our deal was for you to get 10% of the profits, not 10% of the gross...This has turned into a feeding frenzy by your good-ole-boy sharks and you've had a hand in it too, Mr. Clinton. Just ask your Mr. Nash to produce a business card. I'll bet it reads Arkansas Development and Finance Authority... This ADFA of yours is double-dipping. Our deal with you was to launder our money. You get 10% after costs and post-tax profits. No one agreed for you to start loaning out money to your friends through your ADFA so that they could buy machinery to build our guns. That wasn't the deal. Mr. Sawahata tells me that one of ADFA's first customers was some parking meter company that got several million dollars in ... how shall we say it. .. in preferred loans...Dammit, we bought a whole gun company, lock, stock and barrel and shipped the whole thing down here for you. And Mr. Reed even help set it up. You people go and screw us by setting up some subcontractors that weren't even authorized by us. ****, people who didn't even have security clearances. That's why we're pulling the operation out of Arkansas. It's become a liability for us. We don't need live liabilities.||”|
The Clinton administration had been caught with its hand in the till. Barr was referring to the CIA's plans to relocate an existing arms manufacturing firm, Iver Johnson Arms of New Jersey, to Arkansas. What the agency hoped would be a secret operation to manufacture untraceable arms for the Contras became an open secret among Clinton cronies. These insiders, having learned what Iver Johnson was really doing, demanded a piece of the action and blackmailed their way into the covert operation. POM, the parking meter manufacturer, owned by Webster Hubbell's father-in-law Seth Ward, leveraged its way into the underground arms-manufacturing loop by manufacturing parts of machine guns without serial numbers so they could not be traced back to the United States government. Hubbell was an attorney with the Rose Law Firm who followed the Clintons to Washington in 1992 and became Associate Attorney General in the US Justice Department.
Ths total lack of security and intelligence professionalism was why the CIA wanted out of Arkansas. The final loose end that needed to be tied up was the investigation of Bill Clinton's half-brother, Roger and his friends.
|“||We are all in this together and let's not forget that the vice-president and Mr. Casey want this operation to be a success. Mr. Seal carried with him a falsely created, high-level profile of a drug runner. All of the cops in the country were investigating a drug operation. They put the police into a position where we could control them. We fed them what we wanted to feed them, when we wanted to feed them. Seal was a diversion. It was perfect until your brother started free enterprising and now we have to shut it down.||”|
It was the arrests of Roger Clinton and Dan Lasater - not the Hasenfus shoot-down months later - that threatened to expose the operation and prompted the CIA to end it. Barr said of the money investigation,
|“||Mr. Meese is intervening right now and there will be no money investigation. The United States Attorney's Office in Little Rock is 'getting religion' as we speak.||”|
Gov. Clinton's reputation as a cad did not go unnoticed by the CIA. Barr ended the meeting with words of encouragement.
|“||Bill, you are Mr. Casey's fair-haired boy ... You and your state have been our greatest asset. Mr. Casey wanted me to pass on to you that unless you ****up and do something stupid, you're No. 1 on the short list for a shot at the job that you've always wanted. You and guys like you are the fathers of the new government. We are the new covenant.||”|
Iran-Contra vs the War on Drugs
The most controversial factor exposed in Iran/Contra is the inherrent contradiction in US policy of allegedly fighting to control the import of illegal narcotics into the United States, while at the same time elements within the US government secretly sought, and some claim continue, to profit or gain from controlling the supply of illegal narcotics brought into the United States. The public debate on drug legalization in the United States is now more than 35 years old. With the creation of the DEA and the War on Drugs in 1974 some thought interdiction and enforcement of distribution and possession violations was the solution. However, law enforcement at all levels, from federal to local, maintained 85% still got through to the end users. Some cited the failure of Prohibition in the 1920s as evidence of the fruitlessness of interdiction and enforcement.
Barring a national consensus, beginning with the National Conference of State Legislators up to the federal government, legalization is unlikely, and the War on Drugs will remain official policy, despite wide recognition of it as a failure. The flipside of keeping narcotics illegal however, the argument from experience goes, only makes gangsters and criminals rich. Similar to lotteries, which at one time were run by organized crime known as "racketeering", state governments now are involved in the "numbers rackets" and reap the profits.
In the interests of national security, a president would have the legal authority, by executive fiat (ordering prosecutors and customs officials to stand down), to bypass laws on the books in an effort to fight organized crime and take the profit out of illegal narcotic smuggling and distribution. Later "seizure laws" were added under Pres. George H.W. Bush to take down domestic distribution kingpins after they made their sales and converted their drug wealth into cash or other property.
The theory is twofold: (1) Having lost the war on drugs and failed at interdiction, the government itself sought to exercise control of importation, distribution, and profits; (2) a nations intelligence agency needs an off-the-books revenue source that enemies cannot calculate as easily as reading the budget of the United States Government which is readily available to anyone under our blue sky laws.
And economically speaking, drug addicts essentially and effectively were enlisted into supporting the cause of anti-communism.
Contra aid had been authorized by Reagan in 1981, and by 1982 Barry Seal began operating out of Mena Arkansas. In late 1982, the First Boland Amendment was passed forbidding direct US aid. It was not until Reagan's second term, beginning in 1985, that sales to Iran were even discussed or considered.
The relationship between the CIA and Bill Clinton's Arkansas had been strained, but the bust of Clinton's brother Roger and the main pivot of the money laundering operation, chief ADFA bond trader Dan Lasater, on cocaine charges in 1985, caused CIA's decision to leave Arkansas and move the operation to Mexico. The shoot-down of Eugene Hasenfus on October 5, 1986 hastened CIA's exit. Not quite 30 days later a story was leaked to the Lebanese newspaper Al-Shiraa that the US sold arms to Iran. The narrative spin quickly became that a few weapons shipment deliveries to Iran over the previous 18 months had funded the Contra supply operation for the previous 5 and half years.
The first direct transfer of arms did not occur until May 1986 when National Securuty Adviser Robert McFarlane and Lt.Col. Oliver North secretly delivered arms and equipment to Teheran with a diplomatic note to the Ayatollah Khomeini from President Reagan along with other gifts. Prior to this direct contact, some weapons had been delivered through Israeli surrogates, in an effort to foster goodwill and relations between Iran and Israel. But at the same time, President Reagan was accused of trading arms for hostages, not arms for cash to support the Contras. Only after the Hasenfus shoot-down occurred did the official story become Iranian arms sales supported the Contra war for 7 years.
This same contradiction in the narative was revisited in 2003 when the US invaded Iraq to oust Saddam Hussein and force regime change. A much publicized photo from 1982 of Donald Rumsfeld shaking hands with Saddam was circulated, recalling a time when the US supposedly was selling arms to Iran. Critics of the Reagan policy swallowed the CIA cover story hook-line-and-sinker, that a few belated arms shipments to Iran had funded the entire Contra war for the better part of a decade, and not Bill Clinton's Arkansas drug running operation.
After the US dropped Saddam as a client, the first transfer occurred covertly on August 20, 1985, when Israel sent 100 TOW missiles to Iran through an arms dealer named Manucher Ghorbanifar. The US agreed in advance to resupply Israel's stockpile, so the sale was indirect. Subsequently, on September 14, 1985, 408 more TOW missiles to use against Saddam's airforce were delivered. Payment by Ghorbanifar was made through the Bank of Credit and Commerce International (BCCI). As part of the deal, Iran supposedly would use their "good offices" to influence terrorist groups holding 7 American hostages. On September 15, 1985, following the second delivery, Reverend Benjamin Weir was released by his captors, the Islamic Jihad Organization. Ultimately two hostages in total were released, but two more were taken, with net gain of zero being released.
Following the delivery of the shoulder launched missiles to Iran, an assistant to Attorney General Ed Meese found a memorandum written by Lieutenant Colonel Oliver North documenting diversion of the proceeds of the sale to aid the Contras. When President Ronald Reagan was informed, he met with representatives of both houses of Congress to disclose their findings; he then asked for the appointment of an independent counsel.
Independent counsel investigation
In the opinion of independent counsel Lawrence E. Walsh, who investigated the affair, under the Arms Export Control Act  such sales to foreign powers not deemed under the term of the act friendly are illegal. Payments to the Contras from the proceeds of private sales, while not illegal, in the opinion of critics were considered highly unethical. Later such arrangements were made explicitly illegal by the Boland amendment to the Federal Appropriation Bill. The independent counsel's opinion alleged that the Reagan administration set about misleading congressional inquiries and may have withheld some documents. There is also the issue of whether the work that John Poindexter, Oliver North and other Reagan Administration officials performed in organizing and implementing the project violated the Boland Amendment.
The week after the story was blown open by media outlets in the wake of midterm congressional elections after Democrats retook the Senate in November 1986, President Reagan returned to the airwaves to affirm publicly that weapons were transferred to Iran, but he claimed they were not part of an exchange for hostages. In a speech in March 1987, he acknowledged that the arms were in fact exchanged for hostages, saying that "what began as a strategic opening to Iran deteriorated, in its implementation, into trading arms for hostages."  The Reagan administration cooperated with the investigation, and no wrongdoing was ever proven. Reagan later stated in his autobiography that, "until Ed Meese uncovered North's memorandum, I had not heard a whisper about funds being channeled from the Iranian arms shipments to the Contras, and I would have not approved of it if anyone had suggested it to me....Yes, I believed in helping the Contras; but no one, including the President, is above the law." 
Michael Ledeen was an early player in the affair, and eventually arranged for arms sales to Iran though the Iranian arms dealer Manucher Ghorbanifar. John Poindexter later resigned, but returned to work under George W. Bush's administration. Oliver North was also a major player in the affair and was called upon to testify before Congress and was questioned for a number of days. His strong answers in the face of Congressional grilling led him to become a type of folk hero at Congress's expense. Caspar Weinberger was indicted, and pardoned by George H.W. Bush.
George H.W. Bush involvement
In addition to the role of future President Clinton, controversy has also focused upon the role of future President George H. W. Bush. The Walsh report noted:
|“||In an early interview with the FBI in December 1986 and in the OIC deposition in January 1988, Bush acknowledged that he was regularly informed of events connected with the Iran arms sales, including the 1985 Israeli missile shipments.2 These statements conflicted with his more extreme public assertions that he was "out of the loop" regarding the operational details of the Iran initiative and was generally unaware of the strong opposition to the arms sales by Secretary of Defense Weinberger and Secretary of State George P. Shultz. He denied knowledge of the diversion of proceeds from the arms sales to assist the contras.3 He also denied knowledge of the secret contra-resupply operation supervised by North.4||”|
Bush had also failed to produce his private diary in response to the independent counsel's subpeonas. On December 24, 1992, Bush pardoned Weinberger and five other government officials accused of Iran-Contra crimes. Following the pardon, then-President Bush refused to be interviewed further about the topic.
- The CIA-Contra-Crack Cocaine Controversy: A Review of the Justice Department's Investigations and Prosecutions, December 1997
- Drugs, Law Enforcement and Foreign Policy. US Senate Committee on Foreign Relations. Subcommittee on Terrorism, Narcotics and International Operations (Kerry Committee). GPO. Washington DC. December 1988.
- https://youtu.be/g_epmurfIk8 ; see also Bill Plante & Michael Singer, Still a Strong Scent on the Mena Trail, Letter to the Editor, Wall Street Journal, 5/3/94.
- Timothy Lange, Daily Kos, 27 December 2009, Blast from the Past. Gene Hasenfus: December 1986
- Felix Rodriguez, a legendary figure, is known as Che Guevara's assassin. http://news.bbc.co.uk/2/hi/7027619.stm According to 60 Minutes producer Leslie Cockburn, Rodriguez persuaded the Medellin Cartel to contibute $10 million to aid the Contras.
- Clinton Turned Blind Eye to Arkansas Contra Connections, High Times, May 1992, p. 21
- Barr served at the time as Chief Counsel for the CIA airline Southern Air Transport, later as Attorney General under George HW Bush.
- Terry Reed & John Cummings, Compromised: Clinton, Bush and the CIA, Shapolsky Publishers, 1994
- luence "Excerpts from the Tower Commission's Report", January 26, 1987.
- An American Life, The Autobiography of Ronald Reagan, pg. 530
- An American Life, The Autobiography of Ronald Reagan, pg. 542